Investors’ Confidence in UK Upstream Industry Rises

Investors' Confidence in UK Upstream Industry Rises

Oil & Gas UK’s Q1 2012 business confidence index published yesterday (10 May) reveals that the confidence of the upstream oil and gas industry across Britain has risen to 64 points on a 100 point scale – the highest since the survey was launched in Q1 2009.

However, the leap in optimism is driven by contractors rather than operators and is tempered by concerns about shortages in skilled personnel and cost inflation in the face of current high activity levels.

David Ripley, Oil & Gas UK’s supply chain director, said: “The industry appears positive about the future with a steady rise in confidence over the last few quarters of 2011. With a record score creeping towards 70 points, the contractors are currently the most positive, reporting high levels of activity and better than average business revenue which could be explained by their involvement in a number of major UK projects as well as growth in the export of their services and goods to clients around the world.

“Operators appear more cautious about the future with both the majors and independents hovering around the 60 mark which suggests that they are taking time to fully evaluate the details and long term implications of the tax changes announced in the 2012 Budget. There are also suggestions that concerns about the availability of skilled people and consequently wage inflation as activity rises is holding back operators’ confidence.”

The Secretary of State for Scotland, Michael Moore, said: “This increase in investor confidence underlines the positive effect of the UK Government’s changes in the Budget and our overall economic policy. These have boosted the sector by ensuring a stable environment for investment. The sector has the confidence to invest offshore, onshore, and in the supply chain and that can only be good news for the economy as a whole.

“As a government, we listened to the industry and provided help in the form of targeted support and measures to stimulate new investment and create certainty in terms of tax relief on decommissioning costs. The UK is taking decisions to benefit the industry and regulate it effectively, guaranteeing its stability and success. We continue to be committed to helping the sector achieve all it can.”

Mr Ripley concluded: “The current wave of investment is keeping the supply chain very busy and contractors are driving the highest overall confidence recorded since the Index began. While tax changes announced in the 2012 Budget help to bring about greater certainty for investment in the medium and long term, operators are concerned that increasing operational and employment costs brought about by current increased activity will affect the attractiveness of the province. In order that this dynamic does not hamper the sector’s future, the industry must now focus on expanding the pool of equipment and talented people that companies can draw upon. These are issues that concern Oil & Gas UK and we will continue our engagement with the UK government to ensure that all relevant departments adopt a co-ordinated approach to sustain the domestic activity of our high performing industry and ensure it remains anchored in the UK.”

The key findings for the first quarter of 2012 are:

• Overall the Oil & Gas UK Index measured 64, an increase of 7 points from 57 in Q4 2011.

• The operators’ outlook increased by 2 points from 59 to 61. The major operators’ index rose from 56 to 57 while the independents’ index remained at 62.

• Across the contractor sector confidence rose 9 points from 57 to 66 with all four sub-sectors well within the 60s range:

– drilling and well services increased from 64 to 70

– facilities engineering, operations and maintenance rose from 55 to 63

– marine and subsea recorded a 3 point increase from 64 to 67

– support services rose by the highest level from 58 to 67

Source: Oil & Gas UK, May 11, 2012